Making industries “garage ready” for startups

One of the most important events in the history of modern computing was the advent of “fabless” (“fabrication-less”) semiconductor companies. The story of fabless semis is similar to the recent history of internet startups: various forces led to an order-of-magnitude reduction of startup costs, which then led to a surge of innovation.

Before the 1980s, if you wanted to invent a new semiconductor, you had to both design and manufacture it. This meant you had to build a large manufacturing plant, something only large companies like Intel, Motorola, and IBM could afford. Hence, semiconductor design was generally too expensive for venture-backed startups.

In the 1979, two computer scientists published a seminal book that argued for the separation semiconductor design and manufacturing. Followed by years of investment by DARPA and others, an industry emerged where chip designers used software (“EDA software”) to design and test semiconductors, and then sent standardized specifications to “foundries” that did the manufacturing (most of which were located in Taiwan – the largest in the world to this day is Taiwan Semiconductor Manufacturing Company).

This dramatically lowered the cost of starting semiconductor design shops, and in turn led to a massive wave of startup innovation. These startups designed chips for cell phones (Qualcomm), Wifi (Atheros), computer graphics (Nvidia), and much more. Most were funded by venture capitalists and located in Silicon Valley.

Tech sectors tend to get really creative when they become “garage ready”: a Steve Jobs and Steve Wozniak, or a Larry Page and Sergey Brin, can, with very little capital, change the world. It happened with semis in the 80s and happened in the 90s and 2000s for internet companies.

Eventually every vertically integrated, capital-intensive sector becomes garage ready. Someday, for example, we will have “fabless” gadget design and biotech research, enabling a small shop in Brooklyn or SoMa to create an iPhone killer or next-generation cancer drug.